“The third-quarter earnings season got off to a grim
start Tuesday with Alcoa Inc. reporting weaker-than-expected numbers and the
pace of sales and profit warnings from others continuing apace. Alcoa missed
profit and sales estimates and said revenue fell at its fastest-growing
segment, which it’s preparing to spin off. The stock tumbled 11.4%...” Story at…
-“In the investment world when you hear ‘never,’ as in rates are ‘never’ going up, it’s probably about to happen.” –Jeff Gundlach
-“It would only take a 100 bp rise in Treasury yields to
trigger the worst price decline in bonds since the 1981 crash.” –Ray Dalio
“If interest rates were to rise again, in defiance of all
of the “never” calls we have seen recently, it would likely mean equity
valuations would fall at the same time.” -Jesse
Felder commentary on Bonds at…
THE BIG FOUR RECESSION INDICATORS (Advisor Perspectives)
“Official recession calls are the responsibility of the
NBER Business Cycle Dating Committee, which is understandably vague about the
specific indicators on which they base their decisions...There is, however, a
general belief that there are four big indicators that the committee weighs
heavily in their cycle identification process...” (1) Nonfarm Employment (2) Industrial
Production (3) Real Retail Sales (4) Real Personal Income (excluding Transfer
Receipts).
My cmt: The above chart shows that the average of the
Big-4” is already below the level at the start of the 2007 recession. Analysis
and additional charts at…
My cmt: My comparison of the cyclical industrial stocks
contained in the XLI ETF vs the S&P 500 shows that cyclicals are
underperforming the S&P 500. This is
cautionary for the market. The
underperformance is not extreme, so investors are not worried about recession, however,
underperformance frequently shows up when the markets are under stress.
BIG DROP COMING FOR THE S&P 500? (Marketwatch)
“The S&P 500 has been trading within a “symmetrical
triangle” on a number of time scales, as the index traced out a pattern of
rising lows and falling highs. Since the upper and lower boundary lines are
narrowing to a point, it’s just a matter of time before the S&P 500 breaks
above or below one of them…“We believe the current formation is a setup for a
move lower,” Worth said. [Carter Worth, technical analyst at research firm Cornerstone
Macro]
Commentary at…
My cmt: Carter Worth said the move would be down and big;
but many technicians see this pattern as a continuation pattern. Since the trend is up that would indicate an
upward breakout followed by new-highs. Generally, my indicators are sending
cautionary messages. Carter may be right, but it may take a while for this to
play out.
MARKET REPORT / ANALYSIS
-Tuesday the S&P 500 was down about 1.2% to 2137 at
the close.
-VIX rose about 15% to 15.36.
-The yield on the 10-year Treasury rose to 1.76%. (Curiously,
investors weren’t buying treasuries as a safe haven Tuesday. A rising yield
suggests bond-holders were selling.)
The size of the down-move Tuesday was statistically
significant and that means that the price-volume move exceeded my statistical
parameters and, in about 60% of the time, that leads to an up-day the next day
(Wednesday).
Volume was down again, about 5% below the monthly average
so it would appear that investors remain wary of this market in the short-term –
they aren’t even sure about the selloff today. Given the market was down nearly
1.6% at one point I would have expected more volume.
We also saw the S&P 500 drop to its longer-term,
lower trend-line and bounce up from there.
The late-day action was positive too. The Index is near its lower
Bollinger Band. All are bullish signs, at least for the short term.
There were bearish indications too:
My sum of 16-daily indicators went from +2 to minus-5. This
is a volatile series so I keep a 10-day sum and it dropped from +1 to -9 (not a
moving average). Market Internals reversed from all-bullish to all-bearish
overall and that’s a somewhat rare event to see them reverse in one day.
In spite of the bearish signs, until the Index breaks below
its lower trend line I don’t know where the market is going in the
short-term. There are too many mixed
signals. My guess is “up” because the lower trend-line held on a statistically
significant down-day and late-day action was bullish.
Long-term, I’m fully invested at 50% in stocks (a
conservative-retiree allocation) – that’s hold my nose bullish.
TRADING PORTFOLIO
I was tempted to go long, but decided against it due to “Money-Trend”
and my “Sum-of-all-indicators” that are both trending down.
TUESDAY MARKET INTERNALS (NYSE DATA)
-10-day moving average of the percentage of stocks
advancing (NYSE): 45.8%. (50.4% yesterday.) A number below 50% is usually BEARISH
for the markets short-term.
-150-day moving average of advancing stocks: 53.6%. (A
value above 50% indicates an up-trend.)
-McClellan Oscillator: declined from -16 to -53
(percentage calculation method).
-New-highs minus new-lows: Minus-6 (It was +122
yesterday.)
-10-day moving average of the change in spread: -7. In
other words, over the last 10-days, on average, the spread has decreased by 7
each day.
Market Internals switched
to Negative on the market.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late. They are most useful when they diverge from
the Index. In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on
Positive, out on Negative – no shorting).
LONG TERM INDICATOR
Tuesday the Price indicator is positive. Volume, VIX
& Sentiment indicators were neutral. Overall the long-term indicator
remained HOLD.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased stock allocation to 50% stocks in
the S&P 500 Index fund (C-Fund) Friday, 23 Sep in my long-term accounts
based on a number of indicators. Remainder is 50% G-Fund. This is a
conservative retiree allocation.
